Gone are the days of the nine-to-five job for an increasing number of Canadians. As the “flexforce” – also known as the “gig economy” – grows, more and more workers, particularly millennials, are making ends meet by maintaining several temporary, flexible and typically part-time jobs instead of one full-time position.
Although the gig economy provides workers with a degree of flexibility, it also comes with several financial challenges, including job precariousness, irregular payment cycles and the burden of saving for taxes and retirement without the assistance of a full-time employer. And for financial advisors and financial planners, working with clients who are part of the gig economy requires finding a unique set of strategies for tackling these challenges.
Shannon Lee Simmons, founder and certified financial planner (CFP) at the New School of Finance in Toronto, estimates that approximately half of the clients of her fee-only financial planning firm are self-employed. Many of them maintain several part-time side jobs – commonly referred to as “side hustles” – to keep the lights on.
For those in the gig economy, “cash-flow management and tax planning are vital to a healthy overall financial life,” Ms. Simmons says. She and her team manage these clients’ finances by making projections of their annual income and creating a system for handling long-term financial concerns such as taxes and retirement savings alongside short-term, day-to-day needs.
Susan Daley, portfolio manager and CFP at PWL Capital Inc. in Waterloo, Ont., agrees that managing short-term and long-term savings is a balancing act for clients who work in the gig economy. She advises clients with irregular incomes to build up a large emergency fund to cover periods of unemployment or underemployment, while also stressing the importance of putting aside a portion of their savings for even longer-term goals.
Ms. Daley recommends to these clients, “make sure that you’re at least saving some money toward your longer-term goals. Then, as your income fluctuates, how can we change that on an ongoing basis to make sure that you’re able to pay your bills, but you’re also not putting your future at risk because you’re only saving a small minimum amount and then spending everything else?”
Stuart Gray, director, financial planning centre of expertise, at Royal Bank of Canada (RBC) in Toronto, agrees that adjusting clients’ savings strategies is particularly important when their incomes vary from month to month.
“Fluctuating incomes need regular adjustments to savings,” Mr. Gray says. “Budgeting becomes a priority. ... It is important to revisit the plan with a millennial as their circumstances change.”
Ms. Daley also notes that another major challenge for clients who are self-employed is “having to deal with everything yourself,” from saving for retirement to setting aside portions of each paycheque to go toward taxes – duties that corporations typically handle for their employees.
As such, one of the duties of a financial planner advising self-employed flexforce workers, Ms. Daley says, is “helping them understand and set aside certain amounts for taxes so that they’re not ending up end of year with a big tax bill that they weren’t expecting.”
Self-employed workers must also manage their own retirement savings in the absence of a pension plan or a group registered retirement savings plan that full-time employers provide. Knowing how to budget for retirement at a young age can be daunting – and it’s even more so for those with precarious employment to find a percentage to save out of their relatively unstable paycheques.
A recent survey of flexforce workers conducted by Toronto-Dominion Bank (TD) found that almost three-quarters of them (72 per cent) say they find it challenging to save for retirement amid financial burdens, such as paying off debt and covering day-to-day bills and expenses. Furthermore, 64 per cent of survey participants say they anticipate that they will need to work into their senior years because they won’t have enough money saved for retirement.
“Customers who work outside traditional nine-to-five jobs often tell us that their financial focus is on short-term needs, such as paying bills and planning for their next job, rather than long-term goals, such as retirement,” says Jennifer Diplock, associate vice-president, personal savings and investing at TD in Toronto. “Many of these customers also experience irregularity in their pay, which makes it difficult to plan too far ahead.”
What’s more, research shows that flexforce employees who are saving for retirement are doing so in different – and arguably less effective – ways than previous generations. Forty-three per cent of millennials surveyed for RBC’s 2019 Financial Independence in Retirement Poll said they would prefer to use a tax-free savings account to save for retirement while 28 per cent said they’d prefer to use a registered retirement savings plan (RRSP) – despite the tax-deferred compounding interest that the latter provides – because they feel they would be unable to contribute to an RRSP regularly.
Regardless of the various challenges that millenials who are in a precarious work situation face in saving for retirement, advisors should urge these clients to do so as early as possible, using a realistic contribution plan that best fits their lifestyle and monetary goals.
“Regardless of your job status, it’s important to plan ahead and take time to figure out what you want retirement to look like for you,” Ms. Diplock says. “An advisor may work with you to set up automated contributions into a retirement savings vehicle. Even very small amounts will add up over time.”
And for the rare flexforce worker who finds room in their budget to invest, Ms. Daley emphasizes finding low-cost tools for doing so.
“There’s a lot of lower-cost good investing options that are available,” she says. “While we don’t have those gold-plated pensions, the investment industry is improving. Hopefully that helps offset the difficulty in ability to save for people in the gig economy.”